Restructuring in Metal Industry - Abstract (PDF, 218 KB)

Restructuring in Metal IndustryCorporate Performance – Engineered ProductsAbstractMunich, February 20091

Metal industry faces several challenges which quickly have to beaddressed in order to endure and overcome the current crisisCurrent challenges for the metal industry1 Decline in demand for metals2 Decline of metal prices3 Exposure to high procurement costsRISINGNEED FORRESTRUC-TURING4Difficulties in refinancingSource: Roland Berger2

Main levers of restructuring in the metal industry are adjustmentsof production capacity, cost reduction and efficiency improvementMain levers of restructuring in the metal industryMAIN LEVERSCHALLENGE1Adjustments of production capacityDecline in demand for metals2Reduction of material expensesDecline of metal prices3Improvement of production efficiencyExposure to high procurement costsActive liquidity management4 Difficulties in refinancingSource: Roland Berger3

1Shutdown of inefficient production facilities and downstreamcapacities are necessary measures against declining demandAdjustments of production capacityCHALLENGES• Furnaces need minimal utilization to run• Although demand for metals declines,production can not be adjusted totallyflexible due to necessary minimalutilization• Ramp up of production (furnaces) aftercomplete shutdown requires very highcost of repairs• Reduction of production capacity requiresadjustments at downstream capacities(e.g. rolling, forging)RESTRUCTURING MEASURES• Total cost analysis of whole network ofproduction facilities– reorganization ofproduction and shutdown of inefficientproduction units• Adjustments and consolidation of downstreamcapacities• Use of new technologies for shutdown offurnaces which allows subsequent ramp up ofproduction• Focusing on core competencies – covering ofmain steps of value chain through strategiccooperation with specialized offerersSource: Roland Berger4

2Renegotiations with suppliers are best measures to reducematerial expenses in short-term – Long-term hedging necessaryReduction of material expensesCHALLENGESRESTRUCTURING MEASURES• Long-term contracts with suppliers ofraw materials fix high prices – at the• Renegotiation with suppliers on short-term,especiallysame time sales prices of metaldecline sharply• High share of material and energy cost– quantity-based volume rebates– terms of payment– transportation costsin production process• Enlargement of supplier base• Rising prices for raw materials in the• Conversion to energy-efficient productionlong run due to declining replacementtechnologiesinvestments of raw material suppliers • Use of alternative materials• Hedging of lower purchase prices– Options, futures, and swaps– Long-term contracts with suppliersSource: Roland Berger5

3Reduction of personnel expenses and optimization of productionprocesses are main levers to increase production efficiencyImprovement in production efficiencyCHALLENGES• Out-dated production facilities have highmaintenance costs and low energyefficiency• Reduction of production capacity leads tobacklog of employees• Historically grown production processes arenot efficient in current environment (e.g.long transportation distances, high cost ofstorage)• Newly acquired production units are oftennot completely integrated (dupli-cation ofwork, missing coordination in procurement,low cost-transparency)RESTRUCTURING MEASURES• Higher utilization of efficient production unitsand shutdown of inefficient ones• Reduction of personnel expenses– Benefit cuts, flexible working hours– Reduction of personnel in production andmanagement (incl. outsourcing)• Optimization of production processes– Linking of production lines– Rearrangement of required space• Stronger integration of production unitsthrough centralisation of functions,standardization of processes and ITSource: Roland Berger6

4 BACKUPOperational productivity of Primary Aluminum plants in CIS / CEEregion is far behind competitorsProductivity benchmark Primary Aluminum by region [t/FTE] 1)777 765472441385 393324342Best performer160148116256264 291211 205Average94 57854526176Worst China CIS / Asia Africa Central Southern USA Canadaperfor-(n=59) CEE (n=7) (n=6) Europe Europe (n=15) (n=11)mer(n=14) (n=8) (n=59)1) Total employees of Potroom, Anode plant and Maintenance600994COMMENTS• Low productivity inAsian and EasternEuropean companiesdue to outdatedproduction technologies• Low degree ofautomation• Competivite advantageof lower laborcost invalid• High need for invest-ment to boost efficiency• Difficulties to fundmoney for invest-ments due tofinancial crisisSource: Roland Berger, CRU7

4Liquidity-related measures help to overcome difficulties inrefinancingLiquidity-related measuresOPERATIVE MEASURES (Selection)OPTIMIZATION OFINVENTORY• Just-in-time-delivery• Improvement of planning framework and accuracy• Reduction of complexity (spare parts, products, special orders)ACCOUNTSRECEIVABLEMANAGEMENT• Proactive accounts receivable management• Revision and optimization of payment terms• Direct follow-up of ftop-management t at main debtorsOPTIMIZATION OFPAYMENT PERIOD• Agreement of longer time for payment with suppliers• Conversion of short-term liabilities into long-term liabilities• Paying of due payables by instalmentsREFINANCING• Optimization of portfolio – divestment of inefficient or non-core business• Optimization and focussing of investments• Sale- & Lease-Back of production equipment• Disposal of non-operation assets (e.g. real estate)Source: Roland Berger8